Human capital of Ukraine and business development: how to preserve and multiply?
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The first and foremost is the Armed Forces. The second is the international support of partners. And the third is Ukrainian business.
It was he who withstood the covid, survived the invasion, the consequences of which have yet to be fully assessed, and the energy terror.
Ukrainians have the courage during the war to build businesses from scratch in a new place, relocate enterprises, expand production and create jobs, enter new markets.
It is business that fills the budget and earns money for our army. And government and international support is of great importance at this time for Ukrainian small and medium-sized enterprises.
Grants, loans, consultations, help with finding partners and entering European markets, support for startups and innovations allow businesses to survive, grow and continue to work in Ukraine.
But there is a factor without which business cannot develop and the economy cannot grow – it is people. The war forced millions of Ukrainians to leave the country.
And already today, the business is experiencing a shortage of personnel and a reduction in domestic demand. We will definitely win the war, but – in order not to lose recovery – Ukraine needs a strategy for the development of human capital.
Human capital: economic risks
As defined by the World Bank, human capital is a combination of knowledge, skills, health and social protection that affects a person’s potential and ability to generate more economic income, development and enrichment of the country. In our case, we can talk about the ability and readiness for “successful reconstruction and restoration of the country” – the war makes corrections in the wording of peacetime.
According to experts from EasyBusiness and the Center for Economic Recovery, for successful reconstruction and economic recovery, Ukraine’s GDP must grow at a rate of 7% per year until 2032.
This requires the most effective work of the government, the participation of the private sector, investments, and above all – people, that is, labor resources.
Today, according to the NBU’s data on business expectations of enterprises, the lack of qualified personnel is in 5th place among the factors limiting the growth of production.
The dynamics of this indicator are also not optimistic yet: in the second quarter of 2023, more than 24% of respondents expressed concern about the shortage of personnel, while in the first – 20%.
If we analyze the lack of specialists by sphere of activity, it is uneven: construction (40%), mining (31%) and processing industry (30%) are most in need of them, followed by transport, post and communications (23%), and at the end of yatirki – retail trade (21%). It is obvious that these industries will bear the greatest burden during the period of post-war reconstruction of the country, and in the long term, the personnel needs of various sectors will depend on the course of the war.
According to studies, under a negative scenario (the war will continue for the next few years), the mining industry, metallurgy, construction, transport, and the hotel and restaurant business will need the most support; we will also have a shortage of personnel in the food industry and trade.
Under the conditions of a positive scenario (Ukraine quickly wins the war), reconstruction and economic recovery will increase the shortage of personnel in the mining industry, metallurgy and construction. The food industry, on the other hand, may experience a significant shortage of personnel due to the outflow of personnel after the opening of the borders. A similar risk will affect energy and transport. A significant shortage of skilled workers in the field of ICT is also predicted – under the condition of rapid economic recovery and growth.
Capital outflow
According to the Office of the United Nations High Commissioner for Refugees, as of December 5, 2023, there were 6.3 million forced Ukrainian migrants in the world who left Ukraine due to the full-scale Russian invasion. 5.9 million of them are in European countries. According to the International Organization for Migration, about 1.1 million returned home. Due to different approaches to status assessment and calculations, the figures may fluctuate, but they give an idea of the general numbers.
More than 80% of forced migrants are women, a third of them are aged 25-49. About 70% of them have a higher or incomplete higher education – compared to 29% of people over 25 years of age who have a higher education on average in Ukraine.
So, we are talking about economically active, educated women, most of whom have children and have taken them out of the war to safe conditions, and can also give birth to children – the future of any country.
That is, it is a real and potential resource of the state.
Ukraine was in a state of demographic crisis even before the start of the invasion. Mass forced migration and war-related mortality accelerated population decline. According to the forecast of the Institute of Demography, by 2033 the population of Ukraine within the geographical borders of 1991 is estimated to be between 26 and 35 million people. So, the question “Will Ukrainians return to Ukraine?” becomes vitally important.
At the same time, the longer Ukrainians stay abroad, the more they integrate into life there, and the less likely they are to return.
Therefore, Ukraine should form a clear and consistent policy regarding forced migrants, establish communication and coordination with recipient countries regarding the prospects of their return.
It is clear: people need guarantees of security, satisfaction of basic socio-economic, educational and cultural needs, improvement of the quality of life, availability of motivations and incentives, and finally, assistance with return. And the decisive factor for many will be the stable functioning of the labor market, a favorable business climate and effective mechanisms to support entrepreneurship, especially in regions with a high outflow of citizens.
Opportunities for development: domestic potential and international support
Even with the return of Ukrainians from abroad, Ukraine will have a potential labor force deficit of 3.1-4.5 million people, which cannot be overcome exclusively with internal resources.
The policy of human capital development should be aimed at maintaining and developing the working population and youth in Ukraine, returning Ukrainians from abroad and, of course, attracting foreign labor.
But is the internal potential fully used? The issue can be partially resolved by increasing labor productivity and qualifications.
In the context of overcoming the shortage of specialists and gaps in skills, the help of the European Union and the experience of our partners are invaluable. In particular, a number of EU-funded programs and activities are aimed at this, which have a wide range of goals: from the development and acquisition of new skills to establishing partnerships and overcoming barriers to entering European markets, including the labor market.
EU4Business program: recovery, competitiveness and internationalization of SMEs
The EU SME support program “EU4Business: recovery, competitiveness and internationalization of SMEs” is aimed at supporting economic stability, recovery and growth of Ukraine, creating better conditions for the development of Ukrainian SMEs, as well as supporting innovation and exports.
The program is funded by the European Union and the German government and is implemented by the German federal company Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. It started in 2020 and will continue until 2025.
As part of this program, a grant competition for support of Ukrainian SMEs with a total budget of 1 million euros was launched on January 16. The EasyBusiness NGO team, together with experts, will select 100 Ukrainian micro, small and medium-sized enterprises on a competitive basis, which will receive 10,000 euros each for recovery, development and sustainability. The main requirement for participants is export capacity and innovative potential. You can apply for a grant by February 11, 2024 using the link
In addition to this case, there are other interesting programs to support Ukrainian business, which are active right now and are aimed at the development of the Ukrainian economy.
European SME week
The European SME Week is a campaign coordinated by the European Commission. It lasts for a year to promote entrepreneurship in Europe. The key goals of the SME Week are to help create a favorable business environment, increase the competitiveness of SMEs, and encourage more people to do business.
Erasmus for Young Entrepreneurs
The Erasmus for Young Entrepreneurs program helps future entrepreneurs acquire the skills they need to start and successfully run a small business. Budding entrepreneurs exchange knowledge and business ideas with experienced business leaders from whom they learn and collaborate within the program for 1 to 6 months. The program is funded by the EU and operates in participating countries, including Ukraine, through local coordinators.
European Innovation Council
The European Innovation Council was launched as part of the European program Horizon Europe. The budget – which is more than 10 billion euros – is directed to support revolutionary innovations throughout the entire life cycle: from research in the early stages to proof of concept and technology transfer. The program also provides for financing and expansion of startups and SMEs. In 2023, 200 Ukrainian startups received support – up to 60,000 euros each.
LIFE
The LIFE program was launched in 1992 and is financed by the EU. Focused on environment and climate action. In July 2022, Ukraine joined LIFE. It is expected that the program will help overcome the consequences of the Russian invasion and restore our country.
Digital Europe Programme
In September 2022, Ukraine joined the Digital Europe Program of the European Union. Its planned budget reaches 7.5 billion euros. The goal is the development of advanced digital skills, the introduction of digital technologies in business, the development of digital infrastructure and the provision of broad access to digital services for citizens and public institutions in the EU and countries associated with this program.
Possible scenarios
According to EasyBusiness estimates, without an effective state policy in the field of migrant return and due to the negative impact of the war on human capital, namely on such components as education and health, over 10 years Ukraine may lose up to 272 billion USD in GDP (or 255 billion US dollars of gross value added).
In any scenario, Ukraine will lack skilled labor after victory. The return of forced migrants and the attraction of foreigners could significantly reduce or completely close the gap in the labor force. However, Ukraine also needs to use innovative solutions and advanced technologies in production. After all, GDP generation is possible at the expense of a large number of workers, and at the expense of high labor productivity with a smaller number of employees.
Therefore, the European Union and Ukraine closely cooperate within the framework of scientific and high-tech programs Digital Europe (“Digital Europe”), Horizon Europe, Euratom and others, the EU supports Ukrainian startups and promotes the formation of a favorable innovation environment in the regions.
Systematic interaction of Ukraine with European and international partners and organizations is an effective factor in the development of national human capital.
It should be taken into account that Ukraine’s future accession to the EU requires corresponding changes in work with human capital, and now is the time for reforms in this area.
It is not only about monetary support for restoring and ensuring macro-financial stability, but also about cooperation with partners in the field of investments, exchange of experience and scientific developments, harmonization of approaches to acquiring skills and improving the qualifications of the workforce, strengthening institutional capacity, supporting trade, integration into global chains of added value, overcoming poverty, improving the quality of education and medicine, etc.
Such cooperation can enrich all parties with new opportunities for development and modernization, motivate people to learn and improve, and, as a result, ensure confident progress and a decent joint future.
Dmytro Lyvch, executive director of NGO EasyBusiness, partner of CIVITTA
Yaroslav Yashchenko, senior analyst of the EasyBusiness analytical center
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